16th July 2026
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Climate engagement appears to be at a crossroads.
As the gap between climate commitments and real-world outcomes continues to grow, the effectiveness of the finance industry’s “framework and disclosure” era is increasingly being questioned (e.g., Hallett; Sachs; Gosling).
While views differ on the tools and strategies required, there is growing convergence around one principle: climate stewardship should ultimately be judged by its contribution to real-world emissions reductions.
Since the 2015 Paris Agreement, most listed companies have announced net zero targets, published transition plans and adopted disclosure standards. While these measures have improved transparency and signalled corporate intent, they are not outcomes. Judging climate stewardship by its contribution to real-world decarbonisation shifts the focus from commitments to delivery.
As Simon Hallett, Head of Climate Strategy at Cambridge Associates, recently emphasised, "every climate strategy should have a documented theory of change explaining how it contributes to real-world outcomes."
This shift also reframes the debate around investor agency. A successful transition requires coordination between regulation, capital, technology and engineering solutions. While the private sector cannot deliver the transition alone, investors remain critical enablers of decarbonisation. Sitting across industries, supply chains and geographies, investors are uniquely positioned to reinforce transition signals, challenge obstructive corporate lobbying, and support effective policy settings. They are also well placed to hold executives accountable for credible transition plans, capital allocation decisions and emissions outcomes.
BHP provides a useful real-world example. As Australia's largest company, a major emitter and systemically important corporate, BHP’s decision-making over the next decade will influence technology deployment, supply chain investment, sector expectations and the emissions trajectory of both Australia and the global steel industry.
A recent investigation by ABC and The Guardian has raised questions about BHP's commitment to operational decarbonisation. The company's 2030 operational emissions targets are relatively modest and have already been achieved. However, the investigation reports that BHP's major decarbonisation projects, including fleet electrification and diesel displacement, may be delayed into the 2030s. There is now concern that this walk back threatens the credibility of its 2050 net zero goal. Importantly, this debate relates only to BHP's operational emissions, before considering methane emissions or the much larger challenge of its scope 3 steel value chain.
For investors engaging BHP, an integrated strategy could involve:
When real-world emissions reductions are the main objective, climate engagement focuses on where investors can make the greatest difference.
BHP highlights the significant opportunities available to investors to influence technology deployment, capital allocation, policy settings and value chain coordination - it’s up to investors to leverage these channels to drive real-world emissions reductions.
What happens when climate shocks cascade through financial systems?
Dr Sophie Lewis, ACCR Chief Scientist - Engagement
Extreme heat, drought, storms and floods are already disrupting assets, supply chains and communities. Yet many risk assessments still treat these events in isolation, focusing on individual companies, sectors or regions. This approach risks missing the most disruptive threat: systemic risk driven by cascading climate shocks.
From a climate science perspective, this is a critical blind spot. Complex systems rarely fail in neat, linear ways. Shocks propagate, interact and amplify impacts far beyond the initial event. As extremes intensify and become more frequent, these cascading effects become increasingly likely.
Climate impacts do not stop at physical damage. A single event can trigger a chain of economic and financial consequences. Consider a heatwave combined with drought: agricultural yields fall, driving food price inflation. This exacerbates social and political instability, particularly in vulnerable regions. Insurance losses mount, prompting insurers to withdraw or sharply reprice coverage. Asset values then adjust abruptly as once–remote risks become unavoidable.
This is the nature of climate-financial cascades: physical shocks generate economic stress, which in turn drives financial instability. These dynamics are often rapid and compounding, affecting multiple asset classes and geographies simultaneously.
Much of today’s climate risk analysis struggles to capture this reality. Traditional approaches focus on direct damage, sector exposures or smooth, incremental change. They miss three defining features of real-world climate risk: compound events, where multiple hazards coincide; feedback loops, where impacts amplify underlying vulnerabilities; and threshold effects, where systems absorb stress until they fail abruptly.
Recognition of systemic risk is starting to grow. Climate scientists increasingly highlight cascading risks across interconnected systems - energy, food, water and finance - while central banks and regulators now view climate change as a macro-financial threat. But investor understanding of how these dynamics translate into portfolio risk is not yet comprehensive.
This matters because systemic risks behave differently. They involve shared dependencies, correlated losses and sudden regime shifts that undermine diversification. Examples include insurance retreat leaving assets uninsurable, infrastructure failures disrupting multiple sectors, and commodity price spikes from simultaneous crop failures.
The greatest physical risks won’t come from damaged assets, but from destabilised systems. As climate extremes intensify, cascading failures will become more probable - and harder to anticipate through asset-by-asset analysis.
Investors need to recognise that tail risks matter, interconnections amplify shocks, and resilience depends on system-level robustness. Key questions for investors include: where are the critical nodes, which exposures amplify shocks, and at what point could repeated events trigger abrupt repricing?
Dr Sophie Lewis, ACCR Chief Scientist - Engagement
Meteorological agencies around the world have now declared an El Niño event has developed.
The El Niño–Southern Oscillation, or ENSO, is a naturally occurring climatic cycle. It is driven by interactions between the ocean and atmosphere and shifts between three phases: El Niño, neutral, and La Niña. El Niño occurs every two to seven years when easterly trade winds weaken, causing the tropical Pacific Ocean to release a huge amount of heat.
It remains unclear whether the 2026 event will be as strong as early signs are indicating – forecasts vary and uncertainty remains. However, sea surface temperatures in the Pacific are currently 0.9°C above average and many ENSO models suggest they could exceed 2.5°C by the end of the year. Reaching such levels would place this El Niño as one of the strongest on record.
A strong 2026 El Niño is worth watching and preparing for. These climate episodes are typically associated with:
El Niño events do not simply alter ocean temperatures, but ripple and cascade through the entire climate system. As a result, the economic impact of these climate events has been historically large. The 1982-83 El Niño led to $4.1 trillion in global income losses, and the 1997-98 event cut global income by $5.7 trillion.
But what makes the 2026 situation particularly important is that we’re already living in a significantly warmer climate than the 1982, 1997 and 2014 events.